United States

Department

of Agriculture

www.ers.usda.gov

Electronic Outlook Report from the Economic Research Service

WRS-04-02

January 2004 Country-of-Origin Labeling:

Theory and Observation

Abstract

	


		

	
	
	




	

		
		



	
	
	


	

	



		

	
					



	
	


			

 


			
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country-of-origin labeling, consumer demand, meat, fruit and vegetables, fish

and shellfish, peanuts.

Acknowledgments


	


		

	


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Barry Krissoff, Fred Kuchler, Kenneth Nelson,

Janet Perry, and Agapi Somwaru*

* Krissoff, Nelson, Perry, and Somwaru are economists with the Market and Trade Economics Division;

Kuchler is an economist with the Food and Rural Economics Division, Economic Research Service, USDA.
	
	
	


			
	



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2 Economic Research Service, USDA

Introduction

1 For a comprehensive overview of positions, see Mandatory

Country of Origin Labeling Hearings before the Committee on

Agriculture, House of Representatives, www.agriculture.house.gov. 

2 See references for the Federal Register 2002 and 2003. The proposed rule is available on the Agricultural Marketing Service’s

COOL website at www.ams.usda.gov/cool. Public comments are

welcomed until February 27, 2004.
Basic Details of Mandatory COOL


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Informing Consumers:

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Background

3 The proposed rule defines a processed food item to be an item

derived from a covered commodity that has undergone a physical

or chemical change and has a different character, or an item

derived from a covered commodity that has been combined with

either other covered commodities, or other substantive food components resulting in a distinct retail item that is no longer marketed

as a covered commodity.

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Recordkeeping, Compliance and Enforcement


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4 USDA’s Agricultural Marketing Service has posted a list of documents on their website for producers, processors, and retailers to

consider when establishing records for verification purposes,

www.ams.usda.gov/cool/records.htm. During a compliance audit,

USDA auditors will review any and all documents to the extent

necessary to arrive at an accurate decision on the level of compliance.
 

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5 The eight States are Alabama, Arkansas, Florida, Louisiana,

Maine, Mississippi, North Dakota, and Wyoming. 
Innovation in the U.S. Food System

 		


	
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Economic Research Service, USDA 7

6 See "Livestock, Dairy, and Poultry Outlook," various issues,

Economic Research Service, USDA,

www.ers.usda.gov/publications/ldp.

7 Only prepackaged items must be labeled under current U.S.

Customs requirements.



	

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Mandatory COOL:

Impacts on Food Supply, Demand, and International Trade

8 For ease of presentation, this section treats suppliers as a unit,

without distinguishing between retailers, handlers, and farmers.

9 We assume there are no specialized resources used in food production and the industry supply (S) can expand or contract at the

current price. An upward sloping supply curve would not alter our

conclusions except to distribute the costs of COOL to both consumers and suppliers. 

10 An upward sloping supply curve would be implied if suppliers

were able to pass some of the costs of mandatory COOL to producers by lowering the prices that they pay for the covered commodities.

11 The conventional measure of consumer welfare, consumer surplus—the area below the demand curve and above price—is larger

under P1 than under P2.

Figure 1

Price

Labeling leads to additional costs

Quantity Q2 Q1

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Demand

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Figure 2

Price

Intervention that corrects market failure benefits

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12 In many cases, this may be sufficient since most covered commodities sold in the United States are produced domestically.

Moreover, many consumers know that tropical and out-of-season

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13 In addition to Kerr, see Hayes and Meyer, Lusk and Anderson,

Peel, and Plain and Grimes, among others.
		
	

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14 See the following articles for more information about the CGE

model used: X. Diao and A. Somwaru, "A Dynamic Evaluation of

the Effects of A Free Trade Area of the Americas: Intertemporal,

Global General Equilibrium Model" Journal of Economic

Integration, Vol. 16(1), March 2001; X. Diao and A. Somwaru.

"An Inquiry on General Equilibrium Effects of MERCOSUR-An

Intertemporal World Model," Journal of Policy Modeling, Vol. 22,

5, 2000; and X. Diao and A. Somwaru. "MERCOSUR and U.S.;

An Intertemporal General Equilibrium Evaluation of Regional

Integration," International Economic Journal, Vol. 113, No. 1

Spring 1999.
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Estimating the Impact of Mandatory COOL 
14 Economic Research Service, USDA

Estimating the Impact of Mandatory COOL (cont.) 

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Estimated impact of proposed rule on U.S. production, prices, and trade 

Prices Production Exports Imports

Percent change from the base year

Low incremental cost:

Fruit and vegetables 0.11 -0.15 -0.17 -0.20

Cattle and sheep 0.05 -0.14 -0.11 -0.06

Broilers 0.01 0.01 -0.00 0.02

Hogs 0.05 -0.07 -0.09 0.01

Beef and lamb 0.07 -0.15 -0.13 -0.10

Chicken meat 0.01 0.04 0.01 0.03

Pork 0.06 -0.17 -0.16 -0.12

Fish 0.15 -0.26 -0.27 0.01

High incremental cost:

Fruit and vegetables 0.43 -0.49 -0.62 -0.26

Cattle and sheep 0.24 -0.33 -0.37 -0.08

Broilers 0.02 0.03 -0.00 0.03

Hogs . 0.07 -0.15 -0.16 -0.03

Beef and lamb 0.27 -0.34 -0.40 -0.25

Chicken meat. 0.11 0.07 -0.07 0.16

Pork 0.26 -0.39 -0.48 -0.08

Fish 0.64 -0.92 -1.04 0.22
 
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Economic Research Service, USDA 15

Summary 
Blank, Steven C. The End of Agriculture in the

American Portfolio. Westport, CT: Quorum Books,

1998.

Carter, Colin, and Alix Peterson Zwane. "Not So

COOL? Economic Implications of Mandatory

Country-of-Origin Labeling." Gianini Foundation of

Agricultural Economics, June 2003.

Crosbie, William R. Letter addressed to Barry

Carpenter. Agricultural Marketing Service, U.S.

Department of Agriculture, January 17, 2003.

Federal Register. "Mandatory Country of Origin

Labeling of Beef, Lamb, Pork, Fish, Perishable

Agricultural Commodities, and Peanuts; Proposed

Rule." U.S. Department of Agriculture, Agricultural

Marketing Service, 68 (210), October 30, 2003,

www.ams.usda.gov/cool/ls0304.pdf.

Federal Register. Notice of Request for Emergency

Approval of a New Information Collection. U.S.

Department of Agriculture, Agricultural Marketing

Service, 67 (225), November 21, 2002,

www.ams.usda.gov/cool/ls0302.pdf.

Federal Register. Establishment of Guidelines for the

Interim Voluntary Country-of-Origin Labeling of

Beef, Lamb, Pork, Fish, Perishable Agricultural

Commodities and Peanuts Under the Authority of

the Agricultural Marketing Act of 1946. U.S.

Department of Agriculture, Agricultural Marketing

Service, 67 (198), October 11, 2002,

www.ams.usda.gov/cool/ls0213.pdf.

Hayes, Dermot, and Steve Meyer. "Impact of

Mandatory Country-of-Origin Labeling on U.S.

Pork Exports." manuscript commissioned by the

National Pork Producers Council, February 2003,

www.aaec.vt.edu/rilp/Policy%20Papers%20Market

%20Intervention/Hayes%20Paper.pdf, accessed

December 29, 2003.

Harris, J. Michael, Phil Kaufman, Steve Martinez, and

Charlene Price. "Food Manufacturing," in U.S.

Food Marketing System, 2002. U.S. Department of

Agriculture, Economic Research Service, AER-811,

2000.

Ippolito, Pauline M., and Alan D. Mathios. "The

Regulation of Science-Based Claims in

Advertising," Journal of Consumer Policy 13: 413-

445, 1990.

Kerr, William. "The Free-Traders Win the Debates but

the Protectionists Win the Elections: The Curious

Case of MCOOL in the U.S. 2002 Farm Bill."

Presented at the Policy Disputes Information

Consortium, Montreal, April 23-26, 2003.

Lusk, J.L., and J.D. Anderson. "Effects of Country-ofOrigin Labeling on Meat Producers and Consumers,

Purdue University, Department of Agricultural

Economics, Staff Paper #03-07, June 2003.

National Food Animal Identification Task Force.

"U.S. Is Developing a National Animal

Identification Plan To Help Protect Animal

Agriculture," www.animalagriculture.org/id/

TaskForce/USAIP_Aug6_2003.htm, accessed

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16 Economic Research Service, USDA

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Economic Research Service, USDA 17